Learn why XOM stocks fundamentals make it a good investment

Introduction: XOM is undervalued and a solid investment. I'm going to jump into why I believe this to be the case. We are going to look at XOM's current valuation, recent earnings, and 7 key financial ratios. This is a fairly long analysis but if you're thinking of investing in XOM then you should have a decent understanding of why you decided to make this investment. Anyway, enough with the intro, let's jump into the analysis. XOM Summary: If you're not familiar with XOM then here is a quick summary, feel free to jump past this part. “Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States and internationally. It operates through Upstream, Downstream, and Chemical segments.” XOM Stock Recent Volume Comparison I'm usually more of a fundamental investor but I also think there are some technical indicators that help provide additional; content when making an investment, which is why we will look at recent volume. Comparing XOM's most recent volume to their average monthly volume can help us derive some valuable insights. Firstly, XOM's average volume over the past 2 trading days is sitting around 25.04M, which is lower than their average monthly trading volume of 33.12M. XOM's low relative volume suggests that price movements are not expected to be as variable, which is unattractive for traders. This does not mean prices will not go up or down, but the movements/trends are likely to be less significant.) XOM Valuation and Stock Rating Understanding the valuation of a stock is a useful check to see if the investment fundamentals are sound. I pulled the valuation and stock rating for a quick view to see if XOM is considered undervalued or overvalued. Analysts of XOM have given an overall rating of 4, on a rating scale between 1 and 5, with 1 being the worst and 5 being the best. This overall rating consists of 3 different ratings, PE, ROE and DCF which I'll get into below. PE Rating: Currently, analysts have given XOM a PE rating of 4. This high ranking and implies that the XOM stock is currently undervalued. The PE rating factors in the trailing, current, and future PE Ratio of the XOM stock. In the case of XOM, analysts think that XOM is undervalued given their P/E ratios, relative to the average P/E ratio of their peers. ROE Rating: Currently, XOM has been given an ROE rating of 3 by analysts. This is an average score in terms of a company's ROE rating. This indicates that XOM's ROE is both healthy, and in line with their peers. XOM's ROE score of 3 implies that they are currently profitable but they could be generating these profits in a more efficient manner.  DCF Rating: We have saved the best (and most influential) rating for last. XOM has been given a score of 5 based on the quality of their DCF model (and projections). The DCF model is very commonly used by investors to value securities and is the de facto measurement of a stocks value. As a result of this, a high level of importance is placed on the company's DCF models. With that being said, XOM's score of 5 is very good, implying the outlook for XOM is very positive, and their stock is currently undervalued. Based on these metrics we can see that XOM seems to be undervalued and a solid investment. Considering these core metrics look good, I would be likely to take a position in XOM. That being said, I want to look at some other metrics and factors. Recent and Upcoming XOM Earnings Some people like to “play” earnings, but I tend to look at historical and upcoming XOM earnings to analyze or re-analyze my investment. Typically, a beat will cause the price to jump, and a miss will lead to a drop, but we've seen a few cases recently where it's been the opposite. Either way, let's look at XOM Historically, XOM has beat their earnings 55% of the time. This track record is alright and can help us to narrowly assume that they will continue to beat estimates. Furthermore, their average earnings beat is 27.09%, which is a significant amount. XOM's most recent earnings release came on Jan 31st, 2022, in which XOM reported an EPS of $2.05, which was 5.67% better than their EPS estimate of $1.94. Using this information we can expect XOM to beat their next earnings estimate of 2.06 by 27.09%, on Apr 28th, 2022. If this were the case XOM's EPS would be 2.62 which is 217% higher than their Q1 2021 EPS of $0.65. This signifies that XOM is on the right path, and is continuing to generate more revenues, and become more profitable. XOM Stock Key Ratio Analysis There are 7 main financial ratios that we are going to look at today. These ratios can help us to get a general idea of the financial health of the XOM stock before we choose to enter into (or add to) a position. These ratios can help us to understand the current state of Exxon Mobil Corporation's business, as well as what their future might look like. EPS: EPS is one of (if not) the most commonly used in finance. XOM's EPS is currently -5.3, which means that for every outstanding share of XOM they make $-5.3 in net income (after tax). A negative EPS is not favourable fo investors, however, we will continue to look at other metrics. P/E Ratio: The P/E ratio is another very popular financial ratio that is used very commonly. This ratio is used in conjunction with EPS, as the P/E ratio is simply the price of the stock divided by its EPS. As a general rule of thumb (explained by Peter Lynch in his book “one up on wall street”), a company's P/E ratio should be roughly equal (or higher) to their growth rate. In the case of XOM, they have a P/E ratio of 16.09, while their EPS growth rate (3Y) is 22.53%. Since their P/E ratio is somewhat close to their EPS growth rate, we can look at XOM as a "somewhat atttractive investment opportuniy". ROE: A company's ROE is the return a company can receive by projects/investments funded by their shareholder's equity (how well they can turn money into more money). A high ROE is typically favourable, unless it is unusually high, then you may have to do some further investigation. ROE's over 15% are considered to be good, and XOM's ROE is currently at -3.73%. This is not a good ROE as it indicates that theyir investments into projects are not profitable. Debt-to-Equity: A company's Debt-to-Equity ratio shows us how much debt a company is carrying relative to the amount of shareholder's equity they have. By taking a quick look at this figure we can determine if a company's debt levels are potentially risky and need further investigation into. If a company's D/E ratio is above 2.5, we may want to analyze their debt to determine if they will be able to pay it all back (avoiding defaults). XOM's current D/E ratio is 1.05, which is quite healthy. Interest Coverage Ratio: This figure is often used in conjunction with the D/E ratio in order to determine if a company can handle their current level of debt. This metric shows us how well a company's earnings can be used to cover their debt obligations. A high Interest Coverage Ratio indicates that a company should have no problem paying off their debts, and a low coverage ratio may indicate future debt/insolvency problems. XOM currently has an interest coverage ratio of -10.66, which means that they might run into financial hardships if the oil industry starts to decline/stall. EV/EBIT: The EV/EBIT ratio is like the P/E ratio in the sense that they are measures of the value that you are receiving for purchasing a stock at its current market price. Using the EV/EBIT ratio (rather than the P/E ratio) is beneficial as it factors in the company's debt. A lower EV/EBIT ratio indicates that the stock is close to its fair value, and potentially has more intrinsic value than other stocks. Currently, XOM has an EV/EBIT ratio of 39.64, meaning that it will take 39.64 years in order for XOM to generate enough income to reach their current enterprise value. This is high in general terms, however the average EV/EBIT in the oil/energy business is in the mid/high 20's, so it is not unusually high. Operating Margin: A company's operating margin measures the profitability of the company's operations. This metric is most important when using it to compare to peers of a company. This is due to the fact that different industries have different level of profitability. However, if your company's operations are more profitable than your peers, you have an advantage and are a more attractive option. Currently, XOM's operating margin is -4.6%, in comparison to the Oil & Gas Integrated industry's average operating margin of 16.03%. Why I Think XOM is Undervalued/Overvalued Overall, I think that the XOM stock is slightly undervalued. This is due to XOM overall stock grade being ranked a 4, their 55% track record of beating earnings, and the fact that 3/7 key ratios are good (if not great). Combining all of these metrics yields a bit better than average result, which is why I gave XOM a "slightly undervalued" ranking. Thanks for taking the time to read my analysis, please follow me for the latest investment insights and leave a comment if you have any questions or disagree with my thoughts - always open to a good discussion!

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Learn why XOM stocks fundamentals make it a good investment

bullish

Introduction:

XOM is undervalued and a solid investment. I'm going to jump into why I believe this to be the case. We are going to look at XOM's current valuation, recent earnings, and 7 key financial ratios. This is a fairly long analysis but if you're thinking of investing in XOM then you should have a decent understanding of why you decided to make this investment. Anyway, enough with the intro, let's jump into the analysis.

XOM Summary:

If you're not familiar with XOM then here is a quick summary, feel free to jump past this part.

“Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States and internationally. It operates through Upstream, Downstream, and Chemical segments.”

XOM Stock Recent Volume Comparison

I'm usually more of a fundamental investor but I also think there are some technical indicators that help provide additional; content when making an investment, which is why we will look at recent volume.

Comparing XOM's most recent volume to their average monthly volume can help us derive some valuable insights. Firstly, XOM's average volume over the past 2 trading days is sitting around 25.04M, which is lower than their average monthly trading volume of 33.12M.

XOM's low relative volume suggests that price movements are not expected to be as variable, which is unattractive for traders. This does not mean prices will not go up or down, but the movements/trends are likely to be less significant.)

XOM Valuation and Stock Rating

Understanding the valuation of a stock is a useful check to see if the investment fundamentals are sound. I pulled the valuation and stock rating for a quick view to see if XOM is considered undervalued or overvalued.

Analysts of XOM have given an overall rating of 4, on a rating scale between 1 and 5, with 1 being the worst and 5 being the best. This overall rating consists of 3 different ratings, PE, ROE and DCF which I'll get into below.

PE Rating: Currently, analysts have given XOM a PE rating of 4. This high ranking and implies that the XOM stock is currently undervalued. The PE rating factors in the trailing, current, and future PE Ratio of the XOM stock. In the case of XOM, analysts think that XOM is undervalued given their P/E ratios, relative to the average P/E ratio of their peers.

ROE Rating: Currently, XOM has been given an ROE rating of 3 by analysts. This is an average score in terms of a company's ROE rating. This indicates that XOM's ROE is both healthy, and in line with their peers. XOM's ROE score of 3 implies that they are currently profitable but they could be generating these profits in a more efficient manner.

DCF Rating: We have saved the best (and most influential) rating for last. XOM has been given a score of 5 based on the quality of their DCF model (and projections). The DCF model is very commonly used by investors to value securities and is the de facto measurement of a stocks value. As a result of this, a high level of importance is placed on the company's DCF models. With that being said, XOM's score of 5 is very good, implying the outlook for XOM is very positive, and their stock is currently undervalued.

Based on these metrics we can see that XOM seems to be undervalued and a solid investment. Considering these core metrics look good, I would be likely to take a position in XOM. That being said, I want to look at some other metrics and factors.

Recent and Upcoming XOM Earnings

Some people like to “play” earnings, but I tend to look at historical and upcoming XOM earnings to analyze or re-analyze my investment. Typically, a beat will cause the price to jump, and a miss will lead to a drop, but we've seen a few cases recently where it's been the opposite. Either way, let's look at XOM

Historically, XOM has beat their earnings 55% of the time. This track record is alright and can help us to narrowly assume that they will continue to beat estimates. Furthermore, their average earnings beat is 27.09%, which is a significant amount.

XOM's most recent earnings release came on Jan 31st, 2022, in which XOM reported an EPS of $2.05, which was 5.67% better than their EPS estimate of $1.94.

Using this information we can expect XOM to beat their next earnings estimate of 2.06 by 27.09%, on Apr 28th, 2022. If this were the case XOM's EPS would be 2.62 which is 217% higher than their Q1 2021 EPS of $0.65. This signifies that XOM is on the right path, and is continuing to generate more revenues, and become more profitable.

XOM Stock Key Ratio Analysis

There are 7 main financial ratios that we are going to look at today. These ratios can help us to get a general idea of the financial health of the XOM stock before we choose to enter into (or add to) a position. These ratios can help us to understand the current state of Exxon Mobil Corporation's business, as well as what their future might look like.

  1. EPS: EPS is one of (if not) the most commonly used in finance. XOM's EPS is currently -5.3, which means that for every outstanding share of XOM they make $-5.3 in net income (after tax). A negative EPS is not favourable fo investors, however, we will continue to look at other metrics.
  2. P/E Ratio: The P/E ratio is another very popular financial ratio that is used very commonly. This ratio is used in conjunction with EPS, as the P/E ratio is simply the price of the stock divided by its EPS. As a general rule of thumb (explained by Peter Lynch in his book “one up on wall street”), a company's P/E ratio should be roughly equal (or higher) to their growth rate. In the case of XOM, they have a P/E ratio of 16.09, while their EPS growth rate (3Y) is 22.53%. Since their P/E ratio is somewhat close to their EPS growth rate, we can look at XOM as a "somewhat atttractive investment opportuniy".
  3. ROE: A company's ROE is the return a company can receive by projects/investments funded by their shareholder's equity (how well they can turn money into more money). A high ROE is typically favourable, unless it is unusually high, then you may have to do some further investigation. ROE's over 15% are considered to be good, and XOM's ROE is currently at -3.73%. This is not a good ROE as it indicates that theyir investments into projects are not profitable.
  4. Debt-to-Equity: A company's Debt-to-Equity ratio shows us how much debt a company is carrying relative to the amount of shareholder's equity they have. By taking a quick look at this figure we can determine if a company's debt levels are potentially risky and need further investigation into. If a company's D/E ratio is above 2.5, we may want to analyze their debt to determine if they will be able to pay it all back (avoiding defaults). XOM's current D/E ratio is 1.05, which is quite healthy.
  5. Interest Coverage Ratio: This figure is often used in conjunction with the D/E ratio in order to determine if a company can handle their current level of debt. This metric shows us how well a company's earnings can be used to cover their debt obligations. A high Interest Coverage Ratio indicates that a company should have no problem paying off their debts, and a low coverage ratio may indicate future debt/insolvency problems. XOM currently has an interest coverage ratio of -10.66, which means that they might run into financial hardships if the oil industry starts to decline/stall.
  6. EV/EBIT: The EV/EBIT ratio is like the P/E ratio in the sense that they are measures of the value that you are receiving for purchasing a stock at its current market price. Using the EV/EBIT ratio (rather than the P/E ratio) is beneficial as it factors in the company's debt. A lower EV/EBIT ratio indicates that the stock is close to its fair value, and potentially has more intrinsic value than other stocks. Currently, XOM has an EV/EBIT ratio of 39.64, meaning that it will take 39.64 years in order for XOM to generate enough income to reach their current enterprise value. This is high in general terms, however the average EV/EBIT in the oil/energy business is in the mid/high 20's, so it is not unusually high.
  7. Operating Margin: A company's operating margin measures the profitability of the company's operations. This metric is most important when using it to compare to peers of a company. This is due to the fact that different industries have different level of profitability. However, if your company's operations are more profitable than your peers, you have an advantage and are a more attractive option. Currently, XOM's operating margin is -4.6%, in comparison to the Oil & Gas Integrated industry's average operating margin of 16.03%.

Why I Think XOM is Undervalued/Overvalued

Overall, I think that the XOM stock is slightly undervalued. This is due to XOM overall stock grade being ranked a 4, their 55% track record of beating earnings, and the fact that 3/7 key ratios are good (if not great). Combining all of these metrics yields a bit better than average result, which is why I gave XOM a "slightly undervalued" ranking.

Thanks for taking the time to read my analysis, please follow me for the latest investment insights and leave a comment if you have any questions or disagree with my thoughts - always open to a good discussion!

read-time
7 min
99.53
Target Price
9/ 10
Confidence
6-12 Months
Timeframe
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Earnings Release
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News
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SEC
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